David R. Evanson

The Career Advisor, Winter, 2005

Expert’s Corner
David R. Evanson

Do I need an investment policy statement and if so, what good does it do for me and my practice?

We put this question to financial planner, and investment policy statement evangelist Norman Boone, CFP. Boone, president of Boone Financial Advisors in San Francisco and Oakland, teamed up with Linda Lubitz, CFP, also of Boone Advisors, to write Creating an Investment Policy Statement published by the FPA Press.

By way of background, investment policy statements, or IPSs came out of the Employee Retirement Income Security Act or ERISA, which required one for all qualified retirement plans. The province of ISPs was expanded to trusts with the enactment of the Uniform Prudent Investor Act in several states. To Boone’s way of thinking, if IPSs are required in all advisory relationships involving trusts and qualified retirement plans, then they can add plenty of value in financial planning relationships with individuals as well.

In concrete terms, the IPS memorializes all of the discussions and decision the advisors and client have made with regard to what the advisors is going to do with client’s assets.

According to Boone, one of the benefits that IPSs deliver to the client/advisor relationship is keeping the latter anchored. “Typically investors are emotional, chase winners, and do not always make rational on decisions,” he says. “But, if you take the time to create guidelines up front, they have something rational to fall back on in turbulent times while at the same time providing advisors a clearer set of directives to act on.”

But says Boone, the creation and maintenance of investment policy statements does more than anchor clients, it also offers advisors important protection. “An investment policy statement means that expectations are more likely to be met,” he says. More importantly however, with an investment policy in place, unhappy clients are much more likely to be reasonable. He adds that “the history of the courts in these matters seems to show that when there is a reasonable investment policy in place that has been adhered to, cases tend to get thrown out, while without a policy in place the remedies can be very costly.”